Metro

Scores of Cambridge restaurants paid six figures for a liquor license. Others got them for free

FOR FUTURE STORY---DO NOT PUBLISH----- Cambridge, MA., 10/24/17, Sumiao restaurant owner Sumiao Chen Chen paid $200K for a liquor license that she didn't realize she might have been able to get for free. (Sumiao Chen paid $200,000 for a liquor license that other Cambridge restaurant owners got for free.)
Suzanne Kreiter/Globe Staff
Sumiao Chen paid $200,000 for a liquor license that other Cambridge restaurant owners got for free.

CAMBRIDGE — It took years of hard work for Sumiao Chen to open her own restaurant in booming Kendall Square. She navigated a pricey real estate market, lined up financing, and created a menu of authentic Hunan cuisine that’s been drawing a crowd of young patrons since her summer launch.

But there’s one thing she finds galling: paying $200,000 for a liquor license that other Cambridge restaurant owners got for free.

Chen would have loved the same deal, but it was as though she didn’t know the secret handshake. Nothing on the Cambridge License Commission’s website or at its offices explained how to get a free license, and Chen’s advisers told her she had to try to buy one from another restaurant first.

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So Chen hired a broker and wrote a big check for a license to serve drinks, while prominent chefs such as Andy Husbands and Jody Adams were scoring new licenses for nothing at restaurants just blocks away. Even some little-known restaurateurs got free licenses from the city.

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“Think about how much profit I must have” to cover that expense, Chen said in an interview. “Why force us to buy an expensive license? We want to be fairly treated.”

Chen is one in a long line of Cambridge restaurant owners ensnared in an opaque and arbitrary system in which commissioners granted liquor licenses for free to some, while others had to pay up to $450,000 — sometimes at the direct urging of city officials.

Though the city has granted free liquor licenses over the years, the process to get one was so confusing even commissioners had trouble keeping the rules straight. But the outcome was clear: a two-tiered system of haves and have-nots.

Walk a half-mile stretch of Massachusetts Avenue in Central Square, dotted with at least 20 new restaurants over the past few years, and the disparities are stunning. Destinations such as Pagu, Dosa Factory, and Shanghai Fresh all had to buy liquor licenses. By contrast, Naco Taco, Roxy’s, Saloniki, and Viale managed to get free ones.

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In all, 95 restaurants, bars, hotels, and clubs in Cambridge operate with free licenses, or 38 percent of the total, city records show. Another 157 hold licenses they bought from other owners, and now worry they overpaid, as free licenses become more available.

“Of course it’s not fair. It’s crazy,’’ said Ken Oringer, co-owner of Little Donkey in Central Square. He and business partner Jamie Bissonnette paid $250,000 for a liquor license in September 2015 because they didn’t want to risk delaying the opening of their restaurant. They had been warned it was an ordeal to pursue a free license, and a crapshoot.

“I knew that there was a free option,” Oringer said. “But I didn’t know many people who had been successful in getting them.”

07/27/2017 CAMBRIDGE, MA Chef Jamie Bissonnette (cq) at Little Donkey in Cambridge. (Aram Boghosian for The Boston Globe)
Aram Boghosian for The Boston Globe
Chef Jamie Bissonnette and his business partner paid $250,000 for a liquor license because they didn’t want to risk delaying the opening of Little Donkey restaurant.

Well-connected lawyers

No one knew this patchwork of inequity better than the lawyers who made a living navigating the murky system. With so little guidance from the city, many restaurant owners turned to a small cadre of well-connected attorneys who often preached the advantages of buying a license. Other times, they schooled license applicants in how to convince commissioners that they had tried in vain to buy a license, and deserved a free one.

The most influential lawyer, James Rafferty, has appeared at nearly half of the licensing commission’s 254 meetings since late 2008, sometimes representing license seekers, sometimes license sellers, and on at least one occasion, both at the same time.

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With his deep Cambridge ties and roster of large real estate clients, Rafferty is the go-to guy for liquor licenses, known for his detailed presentations to commissioners as he patiently explains a restaurant’s menu, notes the owner’s dedication to the city, or compliments the chair for her knowledge of Korean rice liquor.

“If you wanted to get something done, you’d go to Jim Rafferty,’’ said Jackie Linnane, owner of the now-closed River Gods music club and restaurant, who hired him to help buy a liquor license in 2001 and now fears her license may be worthless because free ones are being issued more easily.

City officials belatedly recognized the regulatory mess they created. A new license commission chair was appointed in January 2016 to help clean up the system. Nicole Murati Ferrer formerly worked at Boston’s licensing agency and was charged with bringing Cambridge in line with state law.

In a Globe interview, Murati Ferrer distanced herself from a number of the commission’s past actions. She is relaxing the hurdles to get free licenses, and she has stopped the commission’s practice of urging license seekers to make deals with particular sellers, which had effectively put the city in the middle of high-cost, private transactions.

But Murati Ferrer made no apologies for past policies on issuing licenses, or the negative consequences for owners caught in the middle. She said the commission had no duty at hearings to inform owners of their options, and that people needed to seek information from the city earlier in the process.

“Our job is not to decide whether you negotiated a good deal,’’ Murati Ferrer said. “The rules and regulations were out there.”

Critics sought transparency

In a windowless basement conference room near City Hall, three commissioners have been the arbiters of who gets a leg up, and who doesn’t, in the Cambridge restaurant business. The three — the sitting chiefs of fire and police, plus a chair appointed by the city manager for a $130,000 annual salary — decide not only who gets to serve a martini or a Malbec; for years, they made decisions that let neighborhoods like Central Square stagnate, with few new liquor licenses, while helping parts of Kendall Square thrive.

Cambridge License Commission chairwoman Nicole Murati Ferrer has distanced herself from a number of the commission’s past actions.
Suzanne Kreiter/Globe Staff
Cambridge License Commission chairwoman Nicole Murati Ferrer has distanced herself from a number of the commission’s past actions.

With such a critical role, many restaurateurs are asking why the commission so often left them in the dark about how to succeed.

“Someone should be held responsible and should be looking out for the business owners,’’ said Tracy Chang, a young chef who launched her Pagu restaurant on Massachusetts Avenue in January with a loan from her family. She spent $230,000 on a liquor license that her lawyer said was her best option.

The city’s current mess was 30 years in the making, as commissioners first sought to rein in rowdy bars by limiting the number of licenses and then ran into a changing economy, as young tech professionals spurred demand for new eating establishments and craft cocktails.

But the process was uneven at best, as commissioners tried to find middle ground between handing out free licenses and making applicants buy them. They often stretched ethical boundaries, and at times broke the commission’s own rules and state law, according to city and state officials.

It all started almost by accident. A quirky City Council vote in 1981 gave the city outsized powers to rule on licenses, according to public records and several interviews. The seemingly routine vote let a Knights of Columbus social club change its liquor license from seasonal to year-round, but it had an oddly sweeping effect: freeing Cambridge from the state’s strict liquor license quota, and giving local officials control.

For five years, bars and taverns proliferated with free licenses, but that didn’t last. Residents complained about noise and drunken driving, and some lobbied for a moratorium on liquor licenses. The commission chair at the time complied.

James McDavitt, now 67, as chair decided to ban new licenses from Harvard Square to Central Square. By 1990, the commission, on its own authority, had stopped offering new licenses in 15 areas.

But the strict new policy triggered a backlash. McDavitt resigned in 1991, saying he was disturbed by phone calls threatening his family. He left behind an entire city essentially under a self-imposed quota.

“That,’’ said Kevin Crane, a Cambridge lawyer who often appears before the commission, “is when I first started calling it Yugoslavia.’’

Prices as high as $450,000

For a time, virtually the only way to get a license was to buy one from another owner. That deterred new restaurants from opening in some parts of the city, such as Central Square, for years. One of the few new chefs working in Central Square in the 1990s said he could see the impact of the policy.

Lawyer James Rafferty (left) has appeared at nearly half of the licensing commission’s 254 meetings since late 2008. Lawyer Kevin Crane (right) also often appears before the commission.
Suzanne Kreiter/Globe Staff
Lawyer James Rafferty (left) has appeared at nearly half of the licensing commission’s 254 meetings since late 2008. Lawyer Kevin Crane (right) also often appears before the commission.

“Every day I would put on my chef whites and politely ask a drug dealer if I could pass by,” said Gary Strack, who opened his Central Kitchen restaurant at a former chicken-wing joint in 1999. The pervasive sense among city officials was that liquor licenses were bad, he said. “The only thing you could do was buy one.”

Linnane, of River Gods, who bought the license in 2001 with Rafferty’s help, said she did not know the free option was even possible.

With severe restraints on licenses, prices spiked as high as $450,000 in 2002, in a purchase by Finale, a dessert restaurant. Over time, the commission began letting some restaurants apply to break the license ban, and make a case for getting a free one.

But the criteria were vague and highly subjective. City commissioners careened from one problem to the next, as they tried to protect owners who had previously paid for licenses and hoped one day to resell them.

They decided free licenses should not be sold or transferred, an action they took without state approval as required by law. And in 2006 they added a haphazard twist: Before applying for a free license, people would have to prove they’d made “every effort” to buy one.

That awkward half-measure put the commission in the position of judging whether restaurant owners had tried hard enough to purchase a license. The results were random.

In one case, the owner of Upper Crust Pizzeria twice complained to the commission that license prices were too high; in a show of leniency, they granted him one for free. By contrast, the owners of Happy Lamb Hot Pot in Central Square also said they couldn’t afford a license, yet wound up buying a wine-and-beer license for $35,000 after being sent away to try harder.

There was no official list of licenses for sale. At hearings, commissioners sometimes played the role of brokers, suggesting names of licenses they’d heard were available for sale, for tens or hundreds of thousands of dollars.

At one 2014 hearing, Robert Haas, a license commissioner at the time and then-Cambridge police commissioner, told the owners of Tory Row, “I’m not asking you to break the bank. . . . I just want to make sure that you make an attempt.’’

And Gerald Reardon, a fellow commissioner and the fire chief at the time, chided the Tory Row owners, saying they had “hit the lottery” with free licenses at two other locations.

Other cities, such as Boston and Somerville, also struggle with license shortages, but haven’t had the authority to set rules or issue licenses as freely as Cambridge has. In Cambridge, the commission’s inconsistency — lenient one moment, strict the next — also led to violations of the rules.

Sandrine’s Bistro, for instance, was allowed to hold two types of licenses at once, against local and state regulations, while Ten Tables was prohibited from doing so, and even had to give away a license it had paid for.

Cambridge, MA - 09/28/17 - Kim Courtney and Xavier Dietrich (cq), owners of UpperWest. For Spotlight story about the messy process of granting liquor licenses in Cambridge. (Lane Turner/Globe Staff) Reporter: (Sacha Pfeiffer) Topic: (31cambridge)
Lane Turner/Globe Staff
When Xavier Dietrich and Kim Courtney made a license pitch in 2014, their wine and charcuterie concept, UpperWest, came under attack from commissioners and a prominent neighbor for its small-plates menu.

The commission granted licenses to a number of music and artistic venues, calling them restaurants even though they had no kitchens and could not adhere to the rule of serving substantial food with drinks. Yet when Kim Courtney and Xavier Dietrich made a license pitch in 2014, their wine and charcuterie concept, UpperWest, came under attack from commissioners and a prominent neighbor for its small-plates menu.

“This is not food,’’ said Stephen Kapsalis, longtime owner of the nearby Cellar pub and restaurant, lashing out at a hearing. “Charcuterie? You know what that is? Salami and baloney.’’

Kapsalis and his high-profile attorney, Walter J. Sullivan Jr., a former chief of the state Alcoholic Beverages Control Commission, especially objected to the idea that UpperWest would get a free license.

After the testimony, then-commission chair Andrea Spears Jackson worried aloud about hurting Kapsalis by putting a free license “next to someone who has probably paid a lot of money for their license.”

Courtney and Dietrich withdrew their application under pressure. They have been at war with the city ever since, blitzing the commission with record requests and videotaping hearings. They eventually opened a restaurant with a free license in North Cambridge.

High-profile help

A number of restaurant owners succeeded out of sheer tenacity, but many others hired local lawyers who do significant business before the city. Andy Husbands and his Smoke Shop barbecue, with Rafferty as his lawyer, easily won approval for a coveted free license at One Kendall Square, a complex that was given special status by the commission.

Cambridge, MA - 10/05/17 - Andy Husbands (cq) in front of the bar at his new Kendall Square restaurant, The Smoke Shop. (Lane Turner/Globe Staff) Reporter: (Sacha Pfeiffer) Topic: (31cambridge)
Lane Turner/Globe Staff
Andy Husbands at his new Kendall Square restaurant, The Smoke Shop.

A Globe analysis found that local connections often paid off. In 2015, of the 10 free licenses issued, seven went to restaurant owners who hired a prominent Cambridge attorney such as Rafferty or had a high-profile landlord.

But some restaurateurs have wondered if, even with legal advice, they overpaid for licenses.

Eddy Hsia said he was told by a commission staff member in 2015 that he had “no chance” of getting a free wine-and-beer license for his Flame Hot Pot & Sushi restaurant. So he bought one for $75,000.

Hsia said his attorney, Andrew Upton, never mentioned that they could have made a case for a free license despite what the staff said. Upton, who also is chair of the Somerville Licensing Commission, recalled it differently. “I think we discussed it,’’ he said, but Hsia “felt he was better off purchasing a license.”

Hsia wishes he had known more.

“It’s outrageous money to buy a piece of paper,’’ Hsia said. “I could have used that amount of money to do other things.”

Tracy Chang relied on Rafferty’s advice when she spent $230,000 on a liquor license for her Pagu restaurant in 2015, in a transaction that raises questions about legal conflicts of interest.

When Chang signed a lease for her restaurant on Massachusetts Avenue, her landlord sent her to Rafferty. He had a client, former Western Front nightclub owner Marvin Gilmore, selling a license.

A contract reviewed by the Globe showed that Gilmore had already promised the license to Chang’s restaurant’s landlord, Forest City Realty Trust, also a past client of Rafferty. Even the price had already been agreed to, before Chang ever arrived on the scene.

Rafferty maintains that the purchase was the most efficient way to secure a license at the time. Chang signed paperwork allowing him to provide legal services to her and Gilmore at the same time, and she bought the license.

The lease, handled by a different lawyer, also gives Forest City first dibs to acquire the license, should Chang want to sell it in the future. Under state law, landlords cannot own or control liquor licenses. Rafferty said he had nothing to do with the lease, and the other lawyer, Eugene Magier of Needham, said neither the city nor the state raised questions about it.

Today, Chang is concerned she overpaid. Rafferty said he informed her of the options, including free licenses, and believes he provided sound legal advice.

“I’m very proud of my representation of Tracy,’’ he said. “I advocated strongly for her.”

Many restaurant owners contacted by the Globe feel the commission’s new rules, making licenses easier to get, are long overdue. But they’re frustrated about the large sums they’ve spent — especially those who bought licenses since the end of 2015, when the rules were changing and no one warned them.

Elizabeth Lint, the commission’s longtime executive director, who runs the office day-to-day, declined multiple requests by the Globe for comment.

But some City Council members are sympathetic. In a statement in June, they said the city had been giving bad advice to restaurant owners about liquor licenses. They have even weighed possible reparations.

Commission chair Murati Ferrer, however, said the city bears no blame for failing to disclose all license options to restaurant owners. She suggested attorneys were at fault if their clients didn’t understand: “I think it’s shame on the lawyer.”

To Sumiao Chen, it was unfair for the city to keep the rules so hidden from view. “The government has to do a better job,” she said.

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth. Sacha Pfeiffer can be reached at sacha.pfeiffer@globe.com. Follow her on Twitter @SachaPfeiffer. Devra First can be reached at devra.first@globe.com. Follow her on Twitter @DevraFirst. Todd Wallack of the Globe staff contributed to this report.